A stop loss is a type of order that behaves as a limiter to loss trading due to the closure of a position when a certain required value has been reached. Stop loss is used by traders to stop booking excessive losses or losses beyond repair for a particular trade. Stop loss is used by many successful traders on exchanges. It acts as an insurance against losses, especially for novice traders.
Stop loss comes in handy when an investor has no time to continuously track his positions and therefore helps in closing the trade automatically if the price reaches a point beyond which the trader cannot afford to lose his money. Stop loss also helps to save the invested amount if the situation has been misjudged by the investor. The trader must analyze the resistance and support levels while using a stop loss in short-term trading. Ideally and logically, stop loss is always set behind the support level but keeping it too close to the support zone can easily knock traders out of the trade due to random price movement.
Stop loss acts as an important tool to trade in the crypto market. This type of order drastically reduces the losses, both monetary and physiological, while trading. Investors are often advised to use stop loss while they are taking new trades that have short-term implications.